MSBI - Earnings call transcript Q1 2018 | Midland States Bancorp, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the Midland States Bancorp First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Allyson Pooley of Financial Profile. begin. may you Ma'am,

Allyson Pooley

good the Thank quarter Midland call. and us XXXX for today for States morning, you you everyone. joining earnings Thank Bancorp's first

us Steve Erickson, Holschbach, Financial Officer. are Officer Joining Jeff Chief management Chief and and and Executive Leon President Ludwig, Midland's from President team

We using presentation a as discussion of our will morning. be this slide part

team to for webcasts will open presentation. of Midland's section If done you presentations the quarter first so haven't the the of Relations discuss already, download website results and The will copy please management your visit the then a Investor and questions. call

website. we involve statements remind you implied different with risks such factors could on the SEC and Before from Midland results and call. filings, that by forward-looking the like which to discussed made obligation during of forward-looking forward-looking contains the performance statements statements. uncertainties. be company's company expressed future future Various available call I in results factors are begin, to update actual company's The any materially respect financial cause are would that this any to disclaims Bancorp to any or condition conference These States the

reconciliation non-GAAP to not be are release discussed to today Leon. directly information measures, the refer to that, well supplement the call to intended of website the I but GAAP And over on turn available with may the management GAAP measures. Additionally, and will financial substitute quantitative other to most the non-GAAP press for which comparable The contains measures. as the as

Leon Holschbach

enhances the quarter, the our completion our management deposit X we with improves notable attractive States approximately Midland's of North welcome including business and the and increases Slide the Good February XX%. the Alpine of profile XX. have highlights On Thanks most and and bank, Allyson. liquidity our morning, expanding in on wealth our base to of low the of call. to our everyone cost Illinois franchise the beyond Bancorp acquisition significantly with adds first summary for This acquisition the addition earnings by

we significant quarter first related later savings the be achieved and which We did in complete significantly elements The mid-July. cost line of XXXX acquisition bond recurring conversion however our is thoughtful ensure generated As acquisition has Alpine and comfortable at with management banking our integration disruptions very business in one The colleagues is we expenses in that strategy will of per smoothly of expenses community to integration incur key far, integrations by scheduled a be solid businesses. vast after the excluded so prudent and result, currently we our towards of so that system be for with When in to majority earnings delivered represent of our no customer there expenses share very These sources new expectations. these service. wealth first per a more and the which our performance. to $X.XX quarter are revenue, in Midland are our make in the earnings shifted share. core $X.XX predictable we considered the

expansion controlled growth standpoint positively trended Given metrics the the But excluded. organic a balance We was seasonally during excluding had our expenses below well and with in quarter. muted. key coming that are of yield slow total non-interest interest sheet saw expense had we the integration higher due our income first in expectations loan other when good our funding we number costs. to quarter, control on And related nice net margin our our accretion fairly portfolio in and our merger expenses

operations this we quarter inefficiencies. for synergy expect to steady integrate this we efficiency and and the Alpine's drive our deal, project improvement Although achieve that up bumped ratio we

roles. implementation the was Mefford and the franchise was quarter first took Jeff we and that of and my of have to in a been Midland expansion become, plan. of company. from benefits their Jeff continuity the while The right our the retirement. Mr. President Bank, also the of organization manage of believe the us leadership it my of Mr. management Bank. built clear Ludwig promoted well and side but the only in understanding excelled for upon event President future as CEO us Company helps of was significant not by larger in seamless the the next Mefford have we and succession their to respective to of organization Another that We responsibilities promoted Ludwig we've a positions the the step transition leadership Both

also to Erickson most the with a recently Steve of serving our and suited major six And banking finance us acquisition to CFO. some Centrue business. planning Jeff. turn call financial makes appointed department. to of around believe of years, has industry diverse to Acquisitions background we Director lines our been going and I'm for as through and efforts as lead leading We and over Mr. Alpine. accounting, the Mergers Ludwig has services Steve investment Steve of our now of walk him the performance our well in the that

Jeff Ludwig

going start activities. I'm Leon. with Thanks our to lending

billion loans of total to With end increased first of outstanding just the the $X the at addition Alpine, quarter. our over

to that or where level our purchase Alpine order aggressive that standpoint, was our payoff activity the pressure initial quarter to growth. organic loan credits our The we total consequence One this portfolio, ratio in contributed in overall net We're impacted very in increased was of deposit rents win mitigate selective From particularly in acute loans annualized. million be the commercial we're deals. X.X% real to of estate our loan loans on total to to portfolio. continuing approach an protect $XX interest higher adjustments and accounting pursue our Following $XXX this competitors being structures a our off pay seeing margin. million and on

and XX basis prior to the lending declined in the our rate from approach quarter. selective that where of result renewed particularly result equipment end the on One quarter, increased loan first to trends January. quarter XXX% to and the us a the ratio deposit loans of originations new a points our loan of see As joined new average the team area, XX% in from as leasing within at we prior the good

lease Our from balance of pipeline the prior increased $XX million nearly this our has the and quarter business end in tripled.

in organic were Total our and the to had deposit deposit the of billion deposits Turning biggest total of portion in our a deposits quarter a as of in to Slide by funds composition total deposits at end $X.X from we'll mix. the our XXXX, mix normal quarter The is ago. total increasing the end retail billion the look deposits at year up X, Alpine At on Alpine during X% of first take declined with From contributing due public first of has of deposits. deposits. fluctuations that impact an first $X.X represented retail a impart XXXX. servicing quarter was deposits standpoint, XX% deposits. This our XX%

X, to going Turning review I'm Slide to wealth management.

reached Alpine, With of the administration addition assets XX. billion at March $X.X our under

a management XX. administration our month due the prior the increased contribution growth year-over-year the by total under Alpine, on Measuring XX% basis Alpine's total from to one the primarily added business. from excluding assets XX% of assets revenue March increased from organic wealth quarter Our as

contributor non-interest to business, in growth income. management this single-largest become has our the wealth With

that predictable significant each mix. is overall this we As enhancement a our higher results steady, to margin quarter business business believe generates a

gain revenue commercial at Turning quarter FHA locks production Slide on Love $XX and to originated prior and total which average the volumes. looking commitments during in higher had relative We the million offset million of X Funding. to rate our was lock quarter, lower $X.X

servicing deposits year. quarter up quarter first average from were the the in Our same $XXX million last X%

costs XX basis the just was servicing Our deposits points. on weighted average

mentioned generated annual of constantly in before, $XX million this million several we've As $XX the business revenue range for years. to has

it since a is current it's will number rate. a be production. but in that new loaded run The However, terms healthy, pipeline been of that produced at of year indicates backend quarters

of risk slip in business, below believe the historic size could revenue the the closing XXXX longer commercial some is, this of deals come deals range. in inherent cause and into annual the to could in a pipeline that year times FHA which we there the Given

possibly that locks contribution overall mix on have million at revenue following results, won't of a impact the of However we're acquisition it's our becoming of our looking given business much portion a $X the in financial terms meaningful of Alpine. variance smaller

to the some Now I'm through to details going results. turn call to financial walk over Steve our on additional

Steve Erickson

interest net Starting interest review and X, our margin. income with Thanks Jeff. Slide I'll net

which in from reported Our decline interest of contribution one-month and the to $XXX,XXX net basis, X% in four This was offset by margin On was results X.XX% accretion net entirely of income accretion primarily decreased partially to was increased points basis income. the fourth by attributable interest the Alpine a the our decline quarter. income.

positive accretion of and our our funding we loan income, net yields expansion to interest impact our as of saw margin costs. a than in shift the well earnings as more Excluding assets, increasing mix due

indicated be accretion going of we've to the income. relatively interest flat excluding past we continue over our As net margin few to expect the impact quarters, forward

Moving X. Slide to our non-interest income on

absolute income sale decline to banking total increased business servicing of increased portion due of in revenue residential compared The our On of was prior attributable servicing partially at the This the Alpine's non-interest dollar Our $X.X were mortgage by operations. entirely primarily non-interest offset income rights to XX% lower to XX% was the of from following our million quarter. to one-month amount, from revenue XXXX. last was beginning our increase XX% mortgage income quarter. of which an total

ratio. increased increase expenses of mortgage as $XX.X well first recorded with due combined of the million across integration our as take we'll quarter month operations acquisition million the efficiency and on with expansion increased excluding XX.X% the XX, of as the associated the servicing basis. loss equipment $X.X financing Slide $XXX,XXX well expense as or in to look Turning incurred to expense at expenses business The a was expenses taxes in rates We on company. Alpine's the linked one quarter in our and integration addition payroll non-interest primarily a quarter, the prior acquisition

Illinois our acquisition XX.X% generated which to Excluding Alpine, XX.X% rate. first to effective efficiency integration in want I note ratio about our being a greater to tax addition tax our we is of the have also Due expenses quarter. higher rate jurisdiction. of the in add a was now quarter percentage compared last the income adjusted a

up percentage effective As a point be previous result, in rate our to expectation. our from projecting XX% now tax we're XXXX X

asset Slide to our at of We during [indiscernible] points the basis first net and we'll X XX, in saw Moving charge-offs. good stability look quality. portfolio quarter the

of charge-offs net total We portfolio. $X recorded were Alpine's Our prior a percentage unchanged brought non-performing which declined I'll of provision call $XXX,XXX. for basis marks back exceeded loans XX. Combined for the of quarter, million loans to addition company's over the XX losses Leon. another a as of due essentially turn as to XX our our of total With March provision the account This with basis of allowance credit points the that, from but which points. loans loan to

Leon Holschbach

comments wrap some Thank outlook. with on you, on XX Mr. We'll our future up Erickson. Slide

will that Our the cost savings we emphasis don't XXXX, business. highly to margin. for on quarter our continuing during the to We're cost loans deposit primary risk such integration recognized on the commercial next we're We're competitive deals books the consider sense ahead like and finance put for be manage deposits we as us few mid-July to be seeing very yields areas incremental and the and bulk of development, cost scheduled just is The the you many those should the conversion both ratio for book being completing putting economic From areas look selective when quarter. the funding more our loans focus net strategy Alpine. seeing us, third will rate estate. seeing lending our the we with standpoint loans. over our some in to and quarters savings in we a before business system of remainder of help make of more are protect particularly adjusted real equipment attractive of done fourth loans the interest new as at the and those the This market get

meet from loan while organic this growth than income, Although, this to middle from digits. we the both historical wealth earnings the should our We higher year. expect still the a our the efficiencies performance And probably integration of and single savings solid drive believe improve net-net feel current in efficiencies. somewhere the revenue current of ability with average banking is prudent likely Alpine growth our and the revenue core a cost in income to for it coming larger basis lower approach and in contributions our result see We in coming the of On the the in balance comfortable businesses. environment. management spread for expectations with year, growth will combination fee street and

Our mix we'll Operator, income, a on have or that of you And continue sources of more questions stable believe that, line. call with be our revenue any towards may happy the overall will up will to which shift franchise. take have. value positive to we the please open impact

Operator

Instructions] our comes Davidson. D.A. [Operator Reevey from first Kevin question of

Your line is now open.

Kevin Reevey

clarification that just wealth were, should a So be [ph] the when total so share you it old put management in you can like community sounds of larger revenues. get banking

goal? of quarter somewhere the last in XX% was the the think kind is to XX% I range, still that So

Steve Erickson

and business historically. we're business that the to at but quick still wealth management yes, more and the and to is revenue contribute the that community stable which Yes, The banking check the that love is mortgage XX% reoccurring but that's not that revenue the and more idea revenue on less predictable we'll it - same and moving had on goal. which mix funding

Kevin Reevey

I is I scenario, correctly And is in on lion time to the going million to revenue achievable if in lumpy, the case it or share the that - second half. be kind the to that goal sounds know not the kind you of a the to revenue achievable $XX was more Love like heard If of but is close. the given Funding. you worst elongated is be then was little heard I million still a correctly, going $XX

Leon Holschbach

Yes, in that Well as historically part achievable fourth year. the we the in quarter that at still to the may we the seen today, back flipped and risk looks though back so the revenue pushed look as business year. see is here has the the deal it we've of happen been next

some to can kind still get we with there's risks indicating to million We we're think risk and to some revenue million with million some of guess that back were we $XX forward, $XX rate. part towards being revenue year is that there pushed back. I So historical $XX $XX there going million of think the business, still we its optimistic the

Kevin Reevey

areas from And that geographic there standpoint in you're given are we then than lastly, real the less enthusiastic Are about where estate cycle. a certain others?

Leon Holschbach

in customers We is follow outside mostly of Illinois Our states. geographic Illinois. lending and surrounding do

pipeline we is on we're us. national business nice new and tripled, demand a businesses a doing more on year so as seeing team hit good ground job leasing and that Our basis earlier in we is brought running has this said the for the the

is the most real Illinois on less to comes estate - cyclical it typically and So the coasts. we the Midwest of in get than when

Kevin Reevey

a on Congrats quarter. you. Thank nice

Operator

Thank you.

from Terry question with comes next Our McEvoy Stephens.

now is line Your open.

Terry McEvoy

help core of XQ, saves are you It just understand for will all quarter me expenses on Maybe around more was could XQ? add maybe a looks just million and the If a and question start realized from your with months have expenses. rate I second two in on like, into Alpine, you run $XX looking basis. on it then, them cost thoughts XXXX what the Alpine good in maybe

Jeff Ludwig

there's Leon's some integration We're of little out to into cost cost estimates outlook moving get think as said details going comfortable parts there's analysts moving into coming there's and with we're know we feel are reluctant so their as this I Alpine, forward. some in, lot of a you where coming pretty in because we

comfortable next for to second - know not two for were to the line quarter, into more line, But that that I might trying I now, quarter. quarter consensus to your expense third they fourth are the with - you guide in right as and first months move line maybe quarter month quarter. be one you full next expense the in its down clarity only the for for comfortable is mean less in that quarter right the quarter. items about of be the but little feel helpful into bottom you're in numbers provide fourth maybe particularly only instead a So Alpine the pretty some that and to second, pin going

Terry McEvoy

in, looking Is that. talked and guess and business call. then on then Okay, wealth I management. And how seasonality I mix you about that from think into Alpine Alpine? the there quarter at a in do we understand trends the came revenue any layering and here on about basis full

Jeff Ludwig

increasing Alpine revenue in quarter. was this the driver primary

pick I gross, we'll months grower, basis that to We've growth rate. It's months, say more steady XXXX business. an our the XXXX, can seen probably but did two single-digit growth have higher quarter. helped, year. of business, to, on an organic we so push first rate, mid there's is then a some that two but last part in we'll want quarter from pretty digits help basis we And see seasonality market us the we up good don't first quarter so So grew see to and in XX% kind health to had second assets don't now budget we nice organic probably market then XX%, to to market of hard mid-single that kind Well that. on the that

Terry McEvoy

that then what you attractive thoughts that for thanks business The actually Love running Though Funding business your very the help revenue question, X% me lose and makes just were just deposit side the those and that there, on if me help is declines last understand up stable deposits. declines, why, could through deposits And risk you year-over-year. to with revenue. associated one with

Jeff Ludwig

Yes, so servicing from deposits our portfolio. are the

to $XX lock originating $XX as million. in so quarter each we're which loans originated rate million So we

as book which servicing the of escrow reserves, has as we're we're - portfolio, servicing We're building it deposit loan $XX the of business payments. normal associated we deposits we're is with into replacement million So there. every the as quarter putting do that There's increasing production base happening. million $XX

nice business thing are creating attractive that servicing book the and the into is rates yes, downs there's some to revenue going but pretty side, be continue and about good the are as on thing loans real those stable. deposits the So is, stable they ups that

Leon Holschbach

talked Love around about purpose is requirements. move we we as accounts, customers of investment morning, rate, so they're because them about of early, Leon its CapEx mandatory The not on prove loan be that accounts. although are about describing as company rate so to especially we its good optional. the public because Yes and steadiness we're reserves to sensitive as to thing as not earlier be and this kind will rate they're and Funding They're prove and this They're relatively those the environment of talked can't will and about jewel be just that insensitive cost. rising in have

Steve Erickson

level And and are Leon needs the even paying be requirement of said, deposits are the as There's maintain that down. a the property rate. loans to still there to required

Terry McEvoy

That's helpful. Thanks guys.

Operator

you. Thank

Our KBW. next from comes question Michael with Perito

Your now line is open.

Michael Perito

a got refi of quick quarter start mortgage the on and business. quarter. every I one for on percentage handful you I've if I fourth purchase to the have closings in guys $XX you go guess of wanted million questions. those,

Leon Holschbach

to minute somebody us. have grab going for You to Mike is that hold a

question. We'll your get me Ask next that.

Michael Perito

terms of quarters and guess to I'm where I seasonally team personnel the side of, business? update then have. next stronger typically kind give with of production us in which think know are I just could you've of maybe trying can on done you that the things just some couple the on you And go,

Leon Holschbach

good question, Jeff. Good ahead

Jeff Ludwig

to production Yes, call before. or I in two side. the on think residential we've We're the put looking rebuild so

last LOs that know beginning of we're Colorado we team [ph] now. in to in lost you hire quarter second year back and As the

better new in probably net second into as third put the I we're and think on the seven for Midwest quarter. we've season heading

So revenues the we expect into as our there quarter. increase to head would we next

Leon Holschbach

the refi percentage And loan.

Jeff Ludwig

so refi Yes, percentage quarter, the in XX%. current

Michael Perito

the bit go $XX they'd million the last was what And closings where quarter.

Jeff Ludwig

closings. in million $XX

Michael Perito

guess two to come have are cycle merger cost, are going Thank quarter, [ph. expenses. that questions the One on I then, in had you more through there Helpful. And any you. I next that guys

Steve Erickson

we deal, the announced we said roughly. when think million I $XX.X So

would with and lighter contracts the the and in million quarter, more we then the expect when costs $XX.X associated people that came to be termination expense. quarter quarter. that So some second through I conversion there's got this third do cancelled

second the So quarter gone the lighter to get as pretty little and in should in as third to then we a heavier quarter be and XXXX. all quarter fourth we hopefully the light and get

Michael Perito

quarter. million left, So third or so $X in next be will off you more the proportionally the think quarter than

Steve Erickson

Yes.

Michael Perito

notable, and mid I'm was then, like wrong, [indiscernible] about than be from parts moving should few of I layering was The with a I bit to expecting, seemed and if some seemed as curios there I me mean it quarters win we thinking notable that expecting. just that to little if guys thoughts Okay move expense least we seemed I was was you taking any relative than did it Alpine through like rate in. expectation. be moderation lower, that what but next rate could that I that understand was perspective? expense quarterly And curious you legacy or here it the Alpine guys obviously have was anything what there lower at

Leon Holschbach

if very there's manage anything line I'm expense in sure a disciplined we're continuing the way. notable to not

big that we the operating so had would quarter to to so but in of save some of came we hold a in and kind headwind team that leasing you that quarter, pretty there, other know bulk here. our that areas we ahead expenses think hired little anything was little the headwind the of good in like able spot. have there I a first in of January, in anything were down taxes payroll there's don't bit We have was the I in did notable natural if So list expenses driven a

as we be now that we lower. able the a drive to that So ratio had should I move we think efficiency begin forward, XX%

Michael Perito

that side rate hires the quarter legacy in the that for just I the legacy or the drive rest run like up run or of excluding in year. rate of talking anticipate Alpine like materially anything you expense mean on the the do business, anything other would that

Steve Erickson

really see big that this need investment big leasing other team. our our hires we We No, year do. was personnel any don't to

I think pretty about. feel good we

Leon Holschbach

CEO the their of of the knock $XX,XXX about selling end so at that the rid getting of year, will They're off [ph].

Michael Perito

going quick cash for forward? was mean one know cash me, then position we Steve. about mix and total billion securities liquidity and the level just I might a the good or good the to kind is for and for take. rest Very fluctuate institution one that of Is a level good I it total balance last The $X place [indiscernible] between give year. mainly sheet overall as move the but securities through be of for us that

Jeff Ludwig

I is far think concerned. liquidity as as the

I down bit. bring to a little probably need think that we

for reinvest down I ways I looking revenue we probably generally some think and spot some enhance we'll think at but maybe earnings. there's to and be And a that that good bring elsewhere. to

Michael Perito

loan on growth Depending probably, right?

Jeff Ludwig

Yes, right.

Michael Perito

Okay. questions Thanks for taking guys. my Appreciated.

Operator

Liesch [Operator O'Neill. Sandler the line next Andrew Instructions] comes question of our with from

open. now is line Your

Andrew Liesch

items good Namely to run questions, by there Covered at as for of want may charges there not Or been my fee all other was driven those interchange these here. just Alpine line Alpine or Thanks. income up. recur this are quarter? quarter? rates that full that [indiscernible] Was but and some most service the look the of anything in via

Leon Holschbach

full on quarter at for that's think the it. to way probably Alpine the right build best I is look Yes,

Jeff Ludwig

and on one of that's most a from yes in got course it. quarter, You've the the month first here the full

Andrew Liesch

that you. Okay only question. Thank That's my helps.

Operator

Kevin next of we the of follow-up a Thank line Reevey D.A. from Davidson. have and you

Your line is now open.

Kevin Reevey

capital. quick a Yes on question

level higher? is Did Do expect and it you're looks came capital area comfortable about you it looks that you're down with? Your there an TC was TA targets you have like you're go X.X. to any - like

Steve Erickson

Yes I'll take that Kevin.

capital we did acquisition, we need just to begin all, PC the probably in the back and will earnings any think build down go in capital I begin raise to integrate retained here and come knew we Alpine at that that down we'll rebuild we've and that and we're targets earnings more capital our Alpine drive X%, the come point mode as the ratio this we hit we up. below So more would slightly set,

Kevin Reevey

Great.

Steve Erickson

percentage And to question other to mortgage on revenue your the revenue. Kevin of

Love. is XX% right mortgage and on You're and XX% so

Kevin Reevey

lot. Excellent. Thanks a

Operator

And I'm over turn this closing would to you. further in back to conference management at no for time. the showing like Thank remarks. queue I questions

Leon Holschbach

right, All thanks all for have talk in this joining morning will That's we for again quarter. we us everyone. and

Operator

in Ladies your today's and program. conference. This concludes gentlemen, participation today's thank you for

Everyone now may disconnect. day. a great have You

Midland States Bancorp (MSBI) 27 Apr 182018 Q1 Earnings call transcript